Investors implement strategic allocations to oil, largest single transaction in longer-dated …
Oil ETC last week, with $43 million into ETFS Brent Oil 1yr (OSB1)
Trading Volumes in Oil ETCs this year have risen sharply, up 400% compared to year ago levels.
ETFS Carbon (CARB) up 43% over past month, the best performing ETC over the period
ETF Securities Limited (ETFS), the global pioneer of Exchange Traded Commodities (ETCs) and provider of Exchange Traded Funds (ETFs), has seen a surge of inflows into long oil ETCs this year as the oil price plunged through the $50/bbl level. Since the beginning of the year oil ETCs have seen $898mn of inflows and $1.3bn since 1 November 2008. Flows into oil ETCs have surpassed even the $1.2bn of flows into ETFS’ physically-backed gold ETCs since November, highlighting extremely bullish investor sentiment towards oil returns.
The Oil ETCs that have seen the largest inflows over this period are $607mn into ETFS Crude Oil (CRUD), $329mn into ETFS Brent 1mth (OILB), $141mn into ETFS Leveraged Crude Oil (LOIL) and $125mn into ETFS WTI 2mth (OILW). ETFS Short Crude Oil (SOIL), which moves inversely to the oil price, has seen $343mn of outflows since peaking in August of last year, taking investors net long positions in Oil ETCs to their highest level on record.
Last week, ETF Securities recorded its largest single trade in an ETC that tracks longer-dated oil futures, with $43mn invested in ETFS Brent 1yr (OSB1), highlighting the interest in ETCs across all maturities including longer dated oil. The ability for investors to gain exposure to oil contracts with different maturities means investors can invest along the oil curve, adjusting their exposures to backwardation* and contango* and different levels of oil price volatility.
Trading volumes in Oil ETCs have surged, with average weekly trading volumes this year up 400% compared to year ago levels. The four most traded oil ETCs in order of trading value are ETFS Crude Oil (CRUD), ETFS Leveraged Crude Oil (LOIL), ETFS Brent 1mth (OILB), and ETFS WTI 1mth (OILW) which together have traded an average of $210mn per week since the start of this year. In February, ETFS Leveraged Crude Oil (LOIL) was the third most traded ETF/ETC on the London Stock Exchange (LSE) behind Gold Bullion Securities (GBS). ETFS Crude Oil (CRUD) and ETFS Brent 1mth (OILB) were ranked 5th and 8th respectively.
The surge in demand for ETF Securities’ Oil ETCs is being driven by strong demand for simple, transparent and liquid methods of gaining exposure to oil prices, and investors view that oil prices will rise from current levels to reflect longer-term supply-demand fundamentals, following the collapse of oil prices in the second half of last year.
With a total of nine oil ETCs available, ETF Securities’ ETCs offer exposure to front month, one, two and three year oil futures returns in Brent and WTI oil benchmarks as well as ETFS Short Crude Oil (SOIL) which allows investors to take a negative view on oil prices. This range of exposures gives investors flexibility to implement a variety of short, long and curve strategies in the oil markets through simple equity market transactions.
ETFS Carbon (CARB) is up 43% over the past month and the best performing ETC over that period. ETFS Carbon was launched in November 2008 offering investors, for the first time ever in Europe, the opportunity to gain simple and direct exposure to the carbon emissions allowance futures market. CARB tracks the ICE ECX EUA Futures Contract traded in London on the ICE Futures Market – currently the most liquid exchange traded contract within the EU Emissions Trading Scheme (“EU ETS”). Each ETFS Carbon is initially equivalent to one emissions allowance; the holder of an emissions allowance owns the right to emit one tonne of carbon dioxide equivalent gas. On the LSE, ETFS Carbon will trade in both EUR (CARB) and also in GBP (CARP) on the London Stock Exchange.
ETF Securities now offers more than 130 ETCs with over $9.5 billion in assets. The ETCs provide investors with a wide variety of investment strategies with ETCs offering physical, long, forward, leveraged and short exposure to all commodity sectors. ETCs are simple to access as they are traded in four currencies (EUR, USD, GBP and AUD) and listed on six major Exchanges globally including the London Stock Exchange, NYSE-Euronext, Deutsche Borse, Borsa Italiana and the Australian Securities Exchange.
Commenting, Nicholas Brooks, Head of Research and Investment Strategy, at ETF Securities said:
“The surge of interest in oil ETCs is unprecedented. Inflows into long oil ETCs have increased by $1.3bn since November 2008, surpassing the $1.2bn of inflows into ETF Securities’ physically-backed gold ETCs over the period. ETFS Brent Oil 1mth (OILB), ETFS WT1 2mth (OILW) and ETFS Crude Oil (CRUD) have seen the largest inflows. The strong interest in oil likely reflects investors’ view that oil prices fell too far last year and that longer-term supply-demand fundamentals may ultimately drive prices higher.”
“The recent increased interest in longer-dated oil ETCs such as ETFS Brent 1yr (OSB1), where there can be less oil price volatility and where contango can be less of a factor, indicates that some investors are looking at current price levels as a good entry point for long term buy and hold strategies. With ETFS Short Crude Oil (SOIL) having seen net outflows of $343mn since peaking in August 2008, net long oil ETC positions have never been higher. This is a dramatic reversal of the situation in May to August 2008 when investors had large net short oil ETC positions as oil prices peaked and fell precipitously.”
Source:ETFWorld.co.uk
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